Intrinsic value of Sequans Communications ADR - SQNS

Previous Close

$2.76

  Intrinsic Value

$3.75

stock screener

  Rating & Target

buy

+36%

  Value-price divergence*

+1321%

Previous close

$2.76

 
Intrinsic value

$3.75

 
Up/down potential

+36%

 
Rating

buy

 
Value-price divergence*

+1321%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of SQNS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  39.39
  33.30
  30.47
  27.92
  25.63
  23.57
  21.71
  20.04
  18.54
  17.18
  15.96
  14.87
  13.88
  12.99
  12.19
  11.47
  10.83
  10.24
  9.72
  9.25
  8.82
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
Revenue, $m
  46
  61
  80
  102
  129
  159
  193
  232
  275
  322
  374
  429
  489
  553
  620
  691
  766
  844
  927
  1,012
  1,102
  1,194
  1,291
  1,392
  1,496
  1,605
  1,718
  1,835
  1,957
  2,084
  2,216
Variable operating expenses, $m
 
  43
  56
  71
  89
  111
  135
  162
  191
  224
  260
  299
  340
  385
  432
  481
  533
  588
  645
  705
  767
  831
  899
  969
  1,041
  1,117
  1,196
  1,277
  1,362
  1,450
  1,542
Fixed operating expenses, $m
 
  35
  36
  37
  38
  38
  39
  40
  41
  42
  44
  45
  46
  47
  48
  49
  50
  52
  53
  54
  56
  57
  59
  60
  61
  63
  65
  66
  68
  70
  71
Total operating expenses, $m
  65
  78
  92
  108
  127
  149
  174
  202
  232
  266
  304
  344
  386
  432
  480
  530
  583
  640
  698
  759
  823
  888
  958
  1,029
  1,102
  1,180
  1,261
  1,343
  1,430
  1,520
  1,613
Operating income, $m
  -20
  -16
  -11
  -6
  2
  10
  19
  30
  42
  56
  70
  86
  103
  121
  140
  161
  182
  205
  229
  253
  279
  306
  334
  363
  393
  425
  458
  492
  527
  564
  602
EBITDA, $m
  -15
  -15
  -10
  -3
  4
  13
  24
  35
  48
  63
  78
  95
  114
  133
  154
  176
  199
  223
  249
  275
  303
  332
  362
  393
  426
  460
  495
  531
  569
  609
  650
Interest expense (income), $m
  0
  1
  1
  2
  3
  4
  5
  7
  8
  10
  12
  14
  16
  19
  21
  24
  27
  30
  33
  36
  40
  43
  47
  51
  55
  59
  64
  68
  73
  78
  83
Earnings before tax, $m
  -25
  -17
  -13
  -8
  -1
  6
  14
  23
  34
  46
  58
  72
  87
  103
  119
  137
  156
  175
  196
  217
  239
  263
  287
  312
  338
  366
  394
  423
  454
  486
  519
Tax expense, $m
  0
  0
  0
  0
  0
  2
  4
  6
  9
  12
  16
  19
  23
  28
  32
  37
  42
  47
  53
  59
  65
  71
  77
  84
  91
  99
  106
  114
  123
  131
  140
Net income, $m
  -25
  -17
  -13
  -8
  -1
  4
  10
  17
  25
  33
  43
  53
  63
  75
  87
  100
  114
  128
  143
  158
  175
  192
  209
  228
  247
  267
  288
  309
  332
  355
  379

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  21
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  65
  83
  108
  138
  173
  214
  261
  313
  371
  435
  504
  579
  659
  745
  836
  931
  1,032
  1,138
  1,249
  1,364
  1,485
  1,610
  1,740
  1,876
  2,017
  2,163
  2,315
  2,473
  2,637
  2,808
  2,986
Adjusted assets (=assets-cash), $m
  44
  83
  108
  138
  173
  214
  261
  313
  371
  435
  504
  579
  659
  745
  836
  931
  1,032
  1,138
  1,249
  1,364
  1,485
  1,610
  1,740
  1,876
  2,017
  2,163
  2,315
  2,473
  2,637
  2,808
  2,986
Revenue / Adjusted assets
  1.045
  0.735
  0.741
  0.739
  0.746
  0.743
  0.739
  0.741
  0.741
  0.740
  0.742
  0.741
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
  0.742
Average production assets, $m
  10
  13
  17
  22
  28
  34
  42
  50
  60
  70
  81
  93
  106
  120
  135
  150
  166
  183
  201
  220
  239
  259
  280
  302
  325
  348
  373
  398
  425
  452
  481
Working capital, $m
  19
  8
  10
  13
  17
  21
  25
  30
  36
  42
  49
  56
  64
  72
  81
  90
  100
  110
  120
  132
  143
  155
  168
  181
  195
  209
  223
  239
  254
  271
  288
Total debt, $m
  24
  39
  60
  86
  116
  151
  191
  235
  285
  340
  399
  463
  532
  605
  682
  764
  851
  941
  1,036
  1,134
  1,237
  1,344
  1,456
  1,572
  1,692
  1,817
  1,947
  2,082
  2,223
  2,369
  2,521
Total liabilities, $m
  56
  71
  92
  118
  148
  183
  223
  267
  317
  372
  431
  495
  564
  637
  714
  796
  883
  973
  1,068
  1,166
  1,269
  1,376
  1,488
  1,604
  1,724
  1,849
  1,979
  2,114
  2,255
  2,401
  2,553
Total equity, $m
  9
  12
  16
  20
  25
  31
  38
  45
  54
  63
  73
  84
  96
  108
  121
  135
  150
  165
  181
  198
  215
  233
  252
  272
  292
  314
  336
  359
  382
  407
  433
Total liabilities and equity, $m
  65
  83
  108
  138
  173
  214
  261
  312
  371
  435
  504
  579
  660
  745
  835
  931
  1,033
  1,138
  1,249
  1,364
  1,484
  1,609
  1,740
  1,876
  2,016
  2,163
  2,315
  2,473
  2,637
  2,808
  2,986
Debt-to-equity ratio
  2.667
  3.230
  3.850
  4.300
  4.620
  4.870
  5.050
  5.190
  5.300
  5.390
  5.460
  5.520
  5.560
  5.600
  5.630
  5.660
  5.680
  5.700
  5.720
  5.730
  5.750
  5.760
  5.770
  5.780
  5.790
  5.790
  5.800
  5.810
  5.810
  5.820
  5.820
Adjusted equity ratio
  -0.273
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -25
  -17
  -13
  -8
  -1
  4
  10
  17
  25
  33
  43
  53
  63
  75
  87
  100
  114
  128
  143
  158
  175
  192
  209
  228
  247
  267
  288
  309
  332
  355
  379
Depreciation, amort., depletion, $m
  5
  1
  2
  2
  3
  3
  4
  5
  6
  7
  8
  9
  11
  12
  13
  15
  17
  18
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
Funds from operations, $m
  -19
  -16
  -11
  -5
  1
  8
  14
  22
  31
  40
  51
  62
  74
  87
  101
  115
  130
  146
  163
  180
  199
  218
  237
  258
  279
  302
  325
  349
  374
  400
  427
Change in working capital, $m
  -3
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
Cash from operations, $m
  -16
  -18
  -13
  -8
  -2
  4
  10
  17
  25
  34
  44
  55
  66
  79
  92
  106
  121
  136
  152
  169
  187
  206
  225
  245
  266
  288
  310
  334
  358
  384
  410
Maintenance CAPEX, $m
  0
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -5
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -15
  -17
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -35
  -37
  -40
  -42
  -45
New CAPEX, $m
  -5
  -3
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -28
  -29
Cash from investing activities, $m
  -5
  -4
  -5
  -7
  -8
  -10
  -10
  -12
  -14
  -16
  -18
  -20
  -22
  -25
  -27
  -28
  -31
  -34
  -36
  -39
  -41
  -44
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -70
  -74
Free cash flow, $m
  -21
  -22
  -19
  -15
  -10
  -6
  -1
  5
  11
  18
  26
  34
  44
  54
  65
  77
  89
  102
  116
  131
  146
  162
  178
  195
  213
  232
  251
  271
  292
  314
  336
Issuance/(repayment) of debt, $m
  9
  18
  22
  26
  30
  35
  40
  45
  50
  54
  59
  64
  69
  73
  78
  82
  86
  90
  95
  99
  103
  107
  111
  116
  120
  125
  130
  135
  141
  146
  152
Issuance/(repurchase) of shares, $m
  24
  20
  16
  12
  7
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  33
  38
  38
  38
  37
  37
  40
  45
  50
  54
  59
  64
  69
  73
  78
  82
  86
  90
  95
  99
  103
  107
  111
  116
  120
  125
  130
  135
  141
  146
  152
Total cash flow (excl. dividends), $m
  12
  16
  19
  23
  27
  31
  39
  49
  60
  72
  85
  99
  113
  127
  143
  159
  175
  193
  211
  229
  249
  269
  289
  311
  333
  357
  381
  406
  432
  460
  488
Retained Cash Flow (-), $m
  -10
  -20
  -16
  -12
  -7
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -4
  3
  11
  20
  25
  32
  42
  52
  63
  75
  88
  101
  115
  130
  145
  161
  177
  195
  213
  231
  251
  271
  291
  313
  335
  359
  383
  409
  435
  462
Discount rate, %
 
  6.40
  6.72
  7.06
  7.41
  7.78
  8.17
  8.58
  9.01
  9.46
  9.93
  10.42
  10.95
  11.49
  12.07
  12.67
  13.31
  13.97
  14.67
  15.40
  16.17
  16.98
  17.83
  18.72
  19.66
  20.64
  21.67
  22.76
  23.89
  25.09
  26.34
PV of cash for distribution, $m
 
  -4
  2
  9
  15
  17
  20
  23
  26
  28
  29
  29
  29
  28
  26
  24
  22
  19
  17
  14
  12
  9
  7
  6
  4
  3
  2
  2
  1
  1
  0
Current shareholders' claim on cash, %
  100
  81.9
  72.0
  66.9
  64.8
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3
  64.3

Sequans Communications S.A., together with its subsidiaries, engages in fabless designing, developing, and supplying 4G LTE semiconductor solutions for wireless broadband applications. Its solutions incorporate baseband processor and radio frequency (RF) transceiver integrated circuits along with proprietary signal processing techniques, algorithms, and software stacks. The company offers baseband solutions used to encode and decode data based on 4G protocols that serve as the wireless processing platform for a 4G device; RF transceivers used to transmit and receive wireless transmissions; and system-on-chip solutions that integrate the baseband and RF transceiver functions. Its solutions serves as the wireless broadband communications platform in various devices, including smartphones; USB dongles; portable routers; embedded wireless modems for laptops, tablets, and other consumer multimedia devices; and customer-premises equipment, such as fixed wireless access modems, routers, and residential gateways. The company serves OEMs, ODMs, contract manufacturers, or system integrators, as well as distributors who provide customer communications, logistics, and support functions. It operates in Europe, the Middle East, Africa, the Americas, and Asia. Sequans Communications S.A. was founded in 2003 and is headquartered in Paris, France.

FINANCIAL RATIOS  of  Sequans Communications ADR (SQNS)

Valuation Ratios
P/E Ratio -8.3
Price to Sales 4.5
Price to Book 23
Price to Tangible Book
Price to Cash Flow -12.9
Price to Free Cash Flow -9.9
Growth Rates
Sales Growth Rate 39.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 177.8%
Total Debt to Equity 266.7%
Interest Coverage 0
Management Effectiveness
Return On Assets -43.9%
Ret/ On Assets - 3 Yr. Avg. -51.4%
Return On Total Capital -106.4%
Ret/ On T. Cap. - 3 Yr. Avg. -105.4%
Return On Equity -625%
Return On Equity - 3 Yr. Avg. -310.3%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 43.5%
Gross Margin - 3 Yr. Avg. 37.8%
EBITDA Margin -43.5%
EBITDA Margin - 3 Yr. Avg. -77.3%
Operating Margin -41.3%
Oper. Margin - 3 Yr. Avg. -86.3%
Pre-Tax Margin -54.3%
Pre-Tax Margin - 3 Yr. Avg. -94.7%
Net Profit Margin -54.3%
Net Profit Margin - 3 Yr. Avg. -94.7%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

SQNS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SQNS stock intrinsic value calculation we used $46 million for the last fiscal year's total revenue generated by Sequans Communications ADR. The default revenue input number comes from 2016 income statement of Sequans Communications ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SQNS stock valuation model: a) initial revenue growth rate of 33.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6.4%, whose default value for SQNS is calculated based on our internal credit rating of Sequans Communications ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Sequans Communications ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SQNS stock the variable cost ratio is equal to 69.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $34 million in the base year in the intrinsic value calculation for SQNS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Sequans Communications ADR.

Corporate tax rate of 27% is the nominal tax rate for Sequans Communications ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SQNS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SQNS are equal to 21.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Sequans Communications ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SQNS is equal to 13%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $9 million for Sequans Communications ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 72.361 million for Sequans Communications ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Sequans Communications ADR at the current share price and the inputted number of shares is $0.2 billion.

RELATED COMPANIES Price Int.Val. Rating
DSPG DSP Group 11.80 2.81  str.sell
QCOM Qualcomm 53.31 49.78  hold
SWKS Skyworks Solut 105.93 60.48  sell
MRVL Marvell Techno 15.95 1.02  str.sell
INTC Intel 35.81 37.95  hold
CAVM Cavium 62.07 43.86  sell

COMPANY NEWS

▶ Sequans reports 2Q loss   [Aug-01-17 09:36PM  Associated Press]
▶ First Sequans-Powered Huawei LTE-M Module Now Available   [Jul-20-17 08:30AM  Business Wire]
▶ Sequans Elects Maïlys Ferrère to Board of Directors   [Jun-30-17 08:00AM  Business Wire]
▶ 3 Chips For Rips, Not Dips   [May-31-17 05:07PM  Zacks]
▶ Bull Of The Day: Sequans Communications (SQNS)   [May-25-17 11:41AM  Zacks]
▶ Sequans reports 1Q loss   [May-02-17 06:27AM  Associated Press]
▶ Sequans reports 4Q loss   [06:16AM  AP]
▶ Sequans Opens R&D Facility in Sophia Antipolis, France   [Jan-30-17 04:00AM  Business Wire]
▶ Sequans Monarch LTE-M Chip Certified by Verizon   [Jan-04-17 08:00AM  Business Wire]
▶ Is CDI Corp. (CDI) A Good Stock To Buy?   [Dec-15-16 08:37AM  at Insider Monkey]
▶ How SeaChange International (SEAC) Stacks Up Against Its Peers   [Dec-13-16 02:51AM  at Insider Monkey]
▶ Sequans reports 3Q loss   [06:24AM  AP]
Stock chart of SQNS Financial statements of SQNS
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.